N.Y. Futures Exchange to Open Belatedly

ByJames L. Rowe Jr.

August 7, 1980

The New Futures Exchange, theNew York Stock Exchange's belated entry into the large and growing financial futures industry, opens its doors tomorrow -- about four months behind schedule and more than four years behind the pioneers of the industry in Chicago.

The New York exchange will begin trading futures contracts in five foreign currencies and Treasury bonds and will add Treasury bill contracts Aug. 14.

The new exchange absorbed the American Commodities Exchange, an affiliate of the American Stock Exchange that never could make a go of it. Observers think that the NYFE, with the prestigious backing of the New York Stock Exchange and a carefully planned program, should give the Chicago trading floors a run for their contracts.

The major Midwest futures exchanges -- the Chicago Board of Trade and the Chicago Mercantile Exchange -- are not taking the opening of the New York Futures Exchange lying down. Both exchanges broadened their offerings in Treasury bill and bond futures in order to match the months in which the New York futures contracts are supposed to expire.

The Commodity Futures Trading Commission, the federal agency that regulates commodity and financial futures trading, tried to block the two Chicago trading floors from adding the new trading months, but Tuesday a federal judge in Chicago overruled the CFTC.

Futures contracts -- be they in traditional commodities like grains, in metals or in financial instruments -- require a buyer or seller to take or make delivery of some product (say $10,000 worth of Treasury bills) at a specified time in the future.

The buyer or seller controls the contract with a small deposit, called a margin, and as the price of the underlying commodity changes, the holder of the contract either makes profits or is forced to add new cash to his margin to cover losses.

Generally buyers and sellers of contracts use the futures trading as a hedge, but buyers can require sellers tomake delivery of the commodity or financial instrument.

The CFTC is concerned that if there is a proliferation of trading in Treasury bill futures there might not be enough of the securities around to satisfy those who want to take delivery. Treasury and the Federal Reserve officials worry that federal financing activities could be upset by financial futures trading.

The NYFE will open with 1,569 members and the exchange is in the middle of an offering to the 200 to 300 former members of the American Commodity Exchange.

Frank J. Jones, senior vice president of the new exchange, said he expects that in the early weeks trading will be dominated by so-called locals, floor traders who buy and sell for their own accounts, and brokerage houses trading for their own accounts.

As exchange volume builds, he said, orders for retail customers will begin to show up.

He said NYFE officials are not concerned that the Chicago exchanges will trade in the same months that the new exchange does.